9.18pm: US markets finished strongly, with the Dow Jones industrial average gaining 180 points to close at 11577. The rally was generally credited to this story, although some EU sources have been denying that a €2bn deal is indeed imminent (eg).

This includes details of a proposal to boost the European financial stability fund to €2trn, by making first-loss guarantees for bondholders, be they private or public. This allows the €440bn fund's firepower to be multiplied fivefold.

This progress means there is growing confidence on both sides that a deal can be struck at this Sunday's crisis summit, EU diplomats say.

France and Germany have reached agreement to boost the eurozone's rescue fund to €2tn as part of a "comprehensive plan" to resolve the sovereign debt crisis that the eurozone summit should endorse this weekend, EU diplomats said.

The growing confidence that a deal can be struck at this Sunday's crisis summit came amid signs of market pressure on France following the warning by ratings agency Moody's that it might review the country's coveted AAA rating because of the cost of bailing out its banks and other members of the eurozone. The leaders of France and Germany hope to agree a deal that will assuage market uncertainties or, worse, volatility in the run-up to the G20 summit in Cannes early next month.

The story may have boosted market confidence, with the Dow Jones (which perhaps we should dub the Gow Jones) index, rallying over 200 points.

8.27pm: King also defended the Bank's quantitative easing programme, insisting that all UK companies - large and small - will benefit, despite the QE funds being used to buy government gilts.

Here's why:

First, gilts are the only asset available in sufficient quantity such that the Bank can rapidly inject large amounts of money into the economy – £75 billion in the present case.

Second, we have bought, and continue to buy, corporate securities, but this was designed to ensure that the corporate bond market functioned normally with the Bank acting as a temporary market-maker in a dysfunctional but previously liquid market. We were able to achieve that objective without the expenditure of large sums of money – unnecessary given the size of the market.

Third, the Bank should not take decisions that discriminate between different companies and sectors. There may well be good reasons for discriminating in some circumstances but that is a decision properly reserved to elected politicians. By buying gilts we leave the private sector to decide in which directions the money we create should percolate through the economy.

8.13pm: Mervyn King has gone on to warn that the UK's economic recovery is being held up by Europe's debt crisis and the wider slowdown in the global economy.

Without record low interest rates of 0.5%, and a quantitative easing budget of £275bn (and rising?), the economy would have keeled over altogether:

Our objective must be to steer the UK economy slowly back to a position of more normal interest rates and lower budget deficits.....With a lower level of sterling and a credible plan to reduce the fiscal deficit over the medium term, we were on track.

But the problems in the euro area and the marked slowing in the world economy have lengthened the period over which a return to normality is likely.

Photograph: Kathy Willens/AP

8.02pm: Speaking now, Bank of England governor Sir Mervyn King is giving a stark warning about the scale of the global financial crisis. Time is running out to find a solution, he just told an audience in Liverpool.(the speech is live on Sky News now).

King has warned that Europe's problem is solvency, not liquidity - a suggestion that some countries, as well as banks, may be in a desperately serious position:

Four years into the crisis it is surely time to accept that the underlying problem is one of solvency not liquidity – solvency of banks and solvency of countries. Of course, the provision of additional liquidity support to countries or institutions in trouble can buy time. But that time will prove valuable only if it is used to tackle the underlying problem.

King is also warning that it is much harder to build a consensus to tackle the underlying weaknesses in the world economy (including imbalances in world trade, huge deficits in many countries, and a massive surplus in China)

Markets now realise that before the crisis banks were seriously undercapitalised and so react in a volatile way to any news about the health of the banking system. And the indebtedness of governments around the world is certainly greater. Time is running out.

7.47pm: It does sound like Ben Bernanke has bitten the bullet on bubbles (as Dominic suggested in the last post).

Here's what the Fed chief was telling reporters at the Boston branch of the Federal Reserve:

The possibility that monetary policy could be used directly to support financial stability goals, at least on the margin, should not be ruled out.

At present, the Federal Reserve has a two-pronged mandate: maximum employment and stable prices.

In the UK, of course, the Bank of England's monetary policy committee sets interest rates with a goal of keeping inflation at 2% in the medium term, but a new financial policy committee has been set up in the aftermath of the crisis. Bernanke may be suggesting that the Fed's remit needs changing.

7.24pm: More and more people, including business leaders such as Jeff Immelt of GE, are coming out on the side of the Occupy demonstrators.

And now the EU is joining the action with a string of proposed sanctions against rogue traders and bankers. David Gow has the details:

As befits a multinational body, it wants to close cross-border loopholes. Apparently, five of the EU's 27 member countries have no criminal sanctions against disclosure of insider information and one (Bulgaria) does not even have them for insider dealing.

"Since market abuse can be carried out across borders, this divergence undermines the internal market and leaves a certain scope for perpetrators of market abuse to carry out such abuse in jurisdictions which do not provide for criminal sanctions for a particular offence," the draft market abuse directive (due out on Thursday and known as MAD2) says.

So all those rogue City traders can migrate to Sofia where they can escape scot-free? Apparently not.....

"During the current crisis, it's more important than ever that criminals who use insider information or manipulate markets should face justice anywhere in the EU. There can be no loopholes for these criminals," says EU Justice Commissioner Viviane Reding.

"Michael Barnier and I are together making sure that all EU authorities tackle this abuse, which saps investor confidence and market integrity."

6.28pm:Ben Bernanke, Fed chairman, has begun speaking in Boston, giving his speech on the "Long term effects of the Great Recession".

My colleague Dominic Rushe is watching:

The financial crisis of 2008 and 2009 was a "historic event" he says - not historic enough for those of us in the 99%, Ben, but we'll let that pass. It's going to have a "profound and long-lasting" effect on the economy but also it will change how economists analyse "macroeconomic and financial phenomena" in the future.

There's no big news in the speech but this is interesting:

However, following a much older tradition of central banking, the crisis has forcefully reminded us that the responsibility of central banks to protect financial stability is at least as important as the responsibility to use monetary policy effectively in the pursuit of macroeconomic objectives.

Is Big Ben suggesting that constantly blowing asset bubbles like his predecessor Alan Greenspan did just might not be in our best long-term interest, Dominic asks.....

Garbage crews, for example, downed tools 17 days ago, resulting in piles of rubbish littering the streets. The government ran out of patience today, with PM Papandreou issuing civil mobilization orders to force them back to their bins.

As Associated Press points out, these powers are generally used for national emergencies and rarely required to solve labour disputes.

6.04pm: Greece continues to creak under the weight of austerity and public anger.

A few minutes ago, prime minister George Papandreou urged his MPs to support the latest round of cutbacks when the plan comes before parliament later this week:

I'm asking for your support. I'm asking for all parties' support but we will be the ones who will once again bear the burden of this decision.

Those cutbacks, from tax rises and benefit cuts to wide-ranging layoffs, have prompted unions to organised a general strike, starting on Wednesday and running for 48 hours.

5.50pm: Worrying signs for France this evening, following Moody's warning last night that its AAA rating was the weakest of all top-rated countries.

French government debt has fallen today, pushing up the interest rate (or yield) on the bonds. That has driven the gap between French and German yields to its highest level since 1992. The yield on French 10-year bonds is currently 3.1%, compared with exactly 2% for the German equivalent - meaning France must pay more than one whole percentage point more than Germany for its borrowings.

Louise Cooper, markets analyst at BGC Partners, says that the French situation has been bubbling away for some time.

Moody's has put into words what many have feared for months - that France's AAA rating could be under pressure.

10 year borrowing costs for France have gone up today and have been on an upward trend since the beginning of October - 10 year yields reached a low of about 2.5% on October 4th and have since risen to be around 3.1% currently.

Our European Government Bond desk here at BGC is seeing only sellers of French bonds today. German bunds have also sold off in the last month although less so than French which is leaving the yield spread between the two countries at record levels, around 100bp.

Image: Bloomberg

This Bloomberg graph shows how the two spreads have widened over the last four years. In 2007, French and German borrowing costs were effectively the same - not any more!

5.28pm: This evening we will be treated to a double-dose of Central Banker Action. At 6.15pm UK time (1.15pm in New York), Fed chair Ben Bernanke will start giving a speech titled "Long-Term Effects of the Great Recession."

Wall Street correspondent Dominic Rushe will be watching.

Two hours later, Sir Mervyn King is due to give a speech in Liverpool - stay tuned for the Bank of England governor's views.

5.12pm: More rating agency action in the last few minutes, with Standard & Poor's downgrading 24 Italian banks and other financial bodies.

In our opinion, renewed market tensions in the euro zone's periphery, particularly in Italy, and dimming growth prospects have led to further deterioration in the operating environment for Italian banks.

4.54pm: Europe's financial markets have closed for the day, after another largely uninspiring session. Mining stocks led the fallers on fears over the global economy (following that Chinese GDP data that hit the gold price), pushing the whole FTSE 100 down 26 points to 5410.

Will Hedden, sales trader at IG Index, said the City was occupied by fears over China, Goldman's loss, and the prospect of Apple posting record-breaking results tonight:

Those 'worrying' Chinese growth numbers are spooking the miners, which could be something of an overreaction as 9.1% GDP growth is hardly something to be sniffed at.

Banks drag despite a rally by their American peers, as downgrade worries over Moody's rating of France outweigh slightly positive 'accounting' musings on US bank earnings. Goldman Sachs reported a much bigger Q3 loss than expected, but profits reported by Bank of America have lifted the sector.

As news wires digest this throughout the evening, the anticipation of Apple's Q3 earnings after the bell wets the appetite of tech-stock geeks everywhere. The stock has traded at all time highs in recent days, as the usual record breaking package is expected.

4.46pm: In the UK, the news that inflation has hit a three-year high of 5.2% has dominated the headlines. Duncan Weldon, senior policy officer in the TUC's Economic and Social Affairs department, has been analysing the data and warned that there's little sign that Britain's economy is actually recovering.

RPI inflation is at its highest since June 1991 and the unemployment level is at its highest since October 1994, which Weldon calls "shocking statistics". Many people are facing a tougher struggle to get by than in autumn 2008, when the financial crisis was at its height.

This certainly doesn't feel like a recovery for those in work or those out of it – incomes are falling, households are cutting back their spending and the economy hasn't grown for nine months.

Weldon points out that regular pay is only growing at 1.6%, meaning that inflation is putting a huge squeeze on earnings. Consumer confidence is low, and household consumption has now fallen for a year.

4.27pm: In the commodity markets, gold has taken a hammering in recent hours. Around $40 has been wiped off the price of an ounce of gold, which is now down at $1,626.

Gold has been a good guide to the levels of alarm in the financial markets this year. Unfortunately, though, today's fall reflects fears over the state of the global economy. Data released this showed that China's gross domestic product grew slower than expected in the third quarter of 2011. Now, 9.1% GDP growth is beyond the dreams of many developed countries, but in China's case, anything below double-digit growth is a worry.

4.05pm: Goldman Sachs, of course, is one of the financial titans whose activities helped to spark the Occupy Wall Street protests.

That movement has now spread to London, where activists are camped close to the heart of the City.

Occupy London demonstrators at a workshop outside St Paul's cathedral. Photograph: David Gould

My colleague Peter Walker is reporting from the camp. Here's the latest:

Three days into existence, and almost 24 hours since I was last here, andthe Occupy the London Stock Exchange camp is simultaneously becoming more serious, professional and permanent, while also more than ever resembling a medieval fair mixed with a very odd tourist attraction,

The makeshift communal food 'tent' - a tarpaulin construction held together by tape, string and goodwill - has been replaced by a large marquee. This, however, has brought problems of its own, with strong gusts of wind wreaking havoc and emergency repairs underway. "The food tent is CLOSED!" bellowed a man I presume is the camp's chef as I walked past. "It won't be open in one hour, it won't be open in two hours."

Similarly, a somewhat plaintive notice by the steps to St Paul's cathedral, in the shadow of which the 200 or so tents are pitched, warns that long-promised portable loos are still a day or so away.

But amid the logistical woes, and the after-effects of last night's heavy rain, the camp is positively bustling. While yesterday, most City workers and, particularly, tourists, kept theirdistance, there is now much more interaction. I passed a small US tour group locked in earnest conversation with two activists about global debt levels.

Partly due to the sunshine, the steps of St Paul's are packed, while a 60-something man dressed in what I can only describe as a leprechaun outfit does Irish dancing. Within the camp, people are chatting, joined in discussion groups, and, inevitably, juggling badly.

Give it six months and the camp will be a genuine tourist attraction. Whether it will still be a reminder, irritant or caution to the City remains to be seen.

3.45pm: Bank of America also reported results this lunchtime. It made a healthy-sounding profit of $6.2bn. However, digging a little beneath the surface and the picture is less bright.

BoA made a pre-tax profit of $3.6 billion after selling its state in China Construction Bank. It also made a $4.5 billion gain from "positive fair value adjustments", following "the widening of the company's credit spreads".

That basically means that BoA has banked a profit, in accounting terms, because its debt is now seen as riskier so it is cheaper to buy it back in the market. Several other Wall Street banks have done the same thing in recent days - Citi and JP Morgan both posted gains of $1.9bn.

It's a curious world where a bank can boost its profits because it appears to be in worse shape than a year ago.....

3.44pm: How is Goldman's share price faring? Surprisingly well - currently up around 1% at $97.9.

That's good news for investors, and Mr Blankfein himself. Not quite so good for Goldman staffers - the company reported that it cut its headcount by 4% during the quarter, and headhunters are speculating that further cuts are imminent.

The banks also seems to have tightened the bonus purse strings -- the amount set aside for bonuses in the last three months shrank by 58%, to $1.58bn. That still leaves Goldmanites sharing a chunky $22.8bn bonus pool for the year so far.

Goldman chairman and chief executive officer Lloyd Blankfein said the bank was "disappointed" by the loss, and blamed "the uncertain macroeconomic and market conditions".

It's a deeper loss than expected, with weaker performances across the board. The financial turmoil over the summer hit Goldman's trading operations as investors fled the markets. Investment banking revenues fell by a third, while fixed-income, currency and commodity revenue were down by 36%. Fees from underwriting tumbled by 61% - after the stock market turbulence meant many potential IPOs were cancelled.

3.30pm: Good afternoon, especially to those of you have joined us from our earlier blog on the financial crisis (you can catch up with the action here)

This afternoon, banks are centre stage. Goldman Sachs and Bank of America have both reported financial results -- we'll bring you reaction as the analysts crunch the figures.

France is moving closer to the centre of the eurozone storm after Moody's warned last night that it could lose its AAA rating (so those rumours yesterday afternoon were right!).